Cost of teacher pensions swamping classroom needs, report says
by Greg Hinz

Pension and related costs are soaking up a huge share of the new money Illinois is putting into the state's public schools, with total spending on retirees likely to exceed that spent on teaching by the next decade.

That's the provocative conclusion of a new report released today by a prominent libertarian group that, while arguable in some of its conclusions, certainly will resonate with business groups that have been pushing state pension reform.

The report by the Illinois Policy Institute says that the combination of rising retirement costs and slow state revenue growth is crowding out Illinois' need to invest in its future: children.

"By the time a child born in 2011 graduates from high school, the state is poised to spend more on teacher retirement benefits than on aid to (pre-kindergarten to grade 12) schools," the report says. The only question is when.

If annual state revenues grow by the 2.3% figure recently estimated by the Legislature's forecasting unit, the tipping point will occur in 2029, the report says. But it could occur several years earlier if growth is somewhat slower.

Already, it adds, retirement costs — which generally are fixed by law, and which the state has to pay — are drawing a majority of the incremental education dollar.

For instance, between 2006 and 2001, 71 cents of every additional state dollar spent on education went for retirement and only 29 cents on day-to-day needs like teacher salaries, books and computers.

Now, the institute's new report has some crucial assumptions and quirks you should be aware of.

First, it excludes Chicago Public Schools, which fund their own pensions — but which obviously would suffer from a shortage of overall state cash.

Two, under "retirement" it includes the cost of retiree health care, which the Legislature clearly could cut — unlike pensions, which some say cannot be constitutionally cut once a teacher is hired.

And the institute includes in retirement costs schools' share of debt service on the $10-billion pension obligation bond issue of a few years ago, even though that debt service already is reflected in reduced annual state payments to schools.

Those assumptions and quirks help explain why, according to the state's Bureau of the Budget, spending on pensions represented 26% of total education spending in the current fiscal year. Emphasis: That's just pensions, not health care or debt service.

The report also effectively assumes that, if money wasn't needed for retirement, it would go into the classroom rather than Medicaid, state police, old bills or other state needs.

All of that having been said, there is no question that state retirement spending is rising quickly and will continue to do so for a few decades because of what even labor unions concede was a political decision to "catch up" later.

A related study also released by the institute this week says the same types of trends now are affecting Illinois higher education, with retirement costs projected to rise $350 million in fiscal 2013 alone.

The Legislature last year voted to slash benefits and hike employee contributions for non-public-safety government workers hired after Jan. 1. But unfunded liability for previously hired state and local workers covered by Illinois' four major pension plans now is estimated at more than $85 billion.

To read this article on the Crain's Chicago Business website, click here.
To read the Institute's Pensions vs. schools reports, click here.